Broker Dealer Best Practices

Proven Leading Practices for Broker Dealer Companies

  • Best Practices (#255) / Broker Dealer / Investment Management

    Best Practice (Good)
    When performing valuations on hard to value financial instruments (for example, over the counter [OTC] derivatives) use multiple sources, such as third party administrators and analysts, to put in place a system of checks and balances on valuation numbers.
    Typical Practice (Bad)
    Allow portfolio managers to split valuation activities between associates and analysts and use the data delivered by them to make decisions on final valuation figures.
    Benefits: Improves the accuracy of valuations and ensures that portfolio managers have a robust and comprehensive set of data with which to make decisions.
  • Best Practices (#256) / Broker Dealer / Investment Management

    Best Practice (Good)
    Ensure that all account information is collected from the beginning. Any portfolio accounts that are created without all necessary information will be unapproved until all required information is provided. For online forms, all fields should be turned into required fields.
    Typical Practice (Bad)
    Set up portfolios with only the minimum amount of information needed.
    Benefits: The organization will have all necessary information about clients. There will be no need for rework as representatives will not have to collect information that should have been collected when the portfolio was created.
  • Best Practices (#257) / Broker Dealer / Investment Management

    Best Practice (Good)
    Use a combination of technical measures, such as historical price and volume data, as well as fundamental measures, such as PE ratios, to determine the favorable price-points of a security.
    Typical Practice (Bad)
    Research a single strategy of investing that has worked in the past, and ignore other valuation techniques.
    Benefits: A plural research method can help to ensure that a portfolio has the right balance of long-term stability versus short-term leverage.
  • Best Practices (#258) / Broker Dealer / Investment Banking

    Best Practice (Good)
    When working on a divestiture or spin-off, provide potential buyers with an operational analysis of the businesses being divested and highlight key areas for cost reduction and process improvement (in addition to financial reports and other financial data).
    Typical Practice (Bad)
    Provide potential buyers with detailed financial reports and related regulatory information during the sales process. Typically, management consulting-style business analysis is not performed or communicated to potential buyers during the sales process.
    Benefits: Providing potential buyers with operational performance data can help increase the likelihood of a sale by highlighting low-hanging fruit that can be picked to achieve cost reduction and service improvements before or after the sale of the assets.
  • Best Practices (#259) / Broker Dealer / Sales & Trading

    Best Practice (Good)
    Regularly verify that fund managers are sensitive to the informational needs of the investor and that the information is sufficient to enable the investor to have a high level of comfort with the manager’s openness and integrity by conducting customer surveys and manager assessments. Verify that the fund manager is committed to an independent valuation of fund assets and annual redemptions and that there is limited use of side pockets (all fully disclosed) or other ‘hide-the-ball’ practices.
    Typical Practice (Bad)
    Address fund managers' perspectives on investors under their management only when a situation arises (e.g., a customer submits a complaint or noncompliance allegation).
    Benefits: Builds a stronger working relationship between customers and fund managers. Increases average customer relationship length and promotes institutional services to other potential customers.
  • Best Practices (#260) / Broker Dealer / Investment Research

    Best Practice (Good)
    Implement a research management system (RMS) to more efficiently organize information. Set different levels of access/editing capabilities for other broker dealer groups that regularly use the data to minimize chances of data/file corruption. Use RMS across research management offices nationally or globally.
    Typical Practice (Bad)
    Store research information in a designated location for the Research Management Group on a company's intranet in multiple folders and databases. Provide associates in other departments the file paths for use of this information.
    Benefits: Allows the Research Management Group to centralize and organize information across offices and assists in investment decision justification across broker dealer groups. Also streamlines compliance with governmental regulations and auditing efforts and increases producitivty as information is easily accessible.
  • Best Practices (#261) / Broker Dealer / Investment Research

    Best Practice (Good)
    Offer integrated views of financial services issues so that each service is always tied to insight of another. Use different platforms to convey this message via publishing of research and white papers, multimedia efforts (such as podcasts and webinars) and industry events.
    Typical Practice (Bad)
    Structure the Research Management Group in a way that researched data and information for each financial service is assembled piecemeal and provided in the form of publications.
    Benefits: Connects the customer and other broker dealer groups to a broader insight into industry markets, trends and economies. Allows the research and information to be easily translated into action.
  • Best Practices (#262) / Broker Dealer / Compliance & Risk Management

    Best Practice (Good)
    Implement standard Know Your Customer (KYC) protocols to assess the amount of due diligence (standard customer due diligence [CDD] or enhanced due diligence [EDD]) required when investigating a particular customer or account.
    Typical Practice (Bad)
    Perform KYC activities based on the type of account that is being opened (standard deposit account, private banking account, etc.) without assessing other risk factors or account updates/behavioral changes.
    Benefits: Performing due diligence activities based solely on account product types can create an unnecessary burden and potentially compromise the effectiveness of AML programs.
  • Best Practices (#263) / Broker Dealer / Compliance & Risk Management

    Best Practice (Good)
    Set and enforce strict information barriers to regulate the flow of compliance-relevant, sensitive information between internal groups and third parties. Keep the transfer of such information to a minimum (“need to know” basis only). Establish a process that would take effect if a sensitive piece of information did need to cross the information barrier to ensure that it is disseminated only to relevant parties in a secure manner.
    Typical Practice (Bad)
    Train employees on what types of information are compliance-relevant and trust their judgment to transmit only this information on a “need to know” basis within their organizational area.
    Benefits: Ensures that sensitive information is not transmitted to unauthorized parties, knowingly or unknowingly, and mitigates risk related to the information leakage. Also sets strict expectations on employees related to the safekeeping of sensitive information.
  • Best Practices (#264) / Broker Dealer / Trade Operations & Support

    Best Practice (Good)
    To assist in trade break or failure resolution, full results of all breaks arising from reconciliation issues should be available if requested by the counterparty. This includes trades with entry field differences, MTM differences and unmatched trades. This principle applies irrespective of technology used to perform the reconciliation, whether performed in house or through a vendor-serviced external platform.
    Typical Practice (Bad)
    Supply counterparty with information on trade breaks or failures upon request. Compile this information manually by pulling data from trading systems.
    Benefits: Reduces cycle time to resolve trade breaks or failures and eliminates a large portion of manual work related to providing counterparties with related information.
  • Best Practices (#265) / Broker Dealer / Trade Operations & Support

    Best Practice (Good)
    Develop incentive “carrot and stick” programs to incentivize investment professionals to adopt new processes that can streamline the gathering and standardization of client data and associated transactions.
    Typical Practice (Bad)
    Address trade operations and support issues as they are identified, then look for solutions to that specific issue.
    Benefits: Creates a culture of innovation and encourages trade operations & support to take a proactive approach in regard to resloving issues they encounter. Decreases resolution time for issues.
  • Best Practices (#266) / Broker Dealer / Trade Operations & Support

    Best Practice (Good)
    Integrate collateral management across product lines to achieve efficient cross-product netting and consistent pricing. Business functions will be integrated across front office, finance, operations, credit and risk functions.
    Typical Practice (Bad)
    Run a silo-based collateral management environment between products with individual margin calls and no integration between different business functions.
    Benefits: Cross-selling of different products will increase, while making it easier to achieve a consistent pricing formula. The integration of business functions will help to increase communication and prevent communication breakdowns.
  • Best Practices (#267) / Broker Dealer / Trade Operations & Support

    Best Practice (Good)
    When performing valuations on hard to value financial instruments (for example, over the counter [OTC] derivatives) use multiple sources, such as third party administrators and analysts, to put in place a system of checks and balances on valuation numbers.
    Typical Practice (Bad)
    Allow portfolio managers to split valuation activities between associates and analysts and use the data delivered by them to make decisions on final valuation figures.
    Benefits: Improves the accuracy of valuations and ensures that portfolio managers have a robust and comprehensive set of data with which to make decisions.
  • Best Practices (#268) / Broker Dealer / Investment & Lending

    Best Practice (Good)
    Document problems encountered by commercial loan processors and provide a formal set of solutions (in the form of an FAQ or training document) for each issue to ensure uniform problem resolution.
    Typical Practice (Bad)
    Train individual specialized commercial loan processors to handle recurring, problematic commercial loan issues so that error resolution is centralized and more tightly controlled.
    Benefits: Formal guidelines to resolve standard, repeat issues decrease cycle time as loan processors do not have to spend time searching for a method to solve the problem.
  • Best Practices (#269) / Broker Dealer / Investment & Lending

    Best Practice (Good)
    Ensure that commercial loan officers provide underwriting with a cover letter for each loan application to inform the underwriter of both the positives and negatives about the case.
    Typical Practice (Bad)
    Ensure that commercial loan officers (or agents, sales staff) verbally (or through email) notify underwriters of possible problems for each individual loan application.
    Benefits: Supplying this letter may take an additional 10 minutes, but may save weeks in the underwriting process.

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